Manufacturing has become a pillar of India's economic development, contributing 16% to GDP. Thanks to strong government intervention, technological modernization, and a skilled workforce, the country is becoming an attractive destination for large companies' manufacturing operations.
The evolution of the manufacturing sector
For decades, following the country's economic liberalization, the services sector has been the engine of India's growth, especially driven by IT services and business process outsourcing.
The manufacturing sector, on the other hand, has stagnated for years, contributing far less to GDP than the industry-driven economies of East Asia. Its expansion has been limited by infrastructure bottlenecks, regulatory complexity, fragmented supply chains, and an underdeveloped industrial sector.
Currently, however, India ranks as the world's fifth-largest manufacturing economy. In terms of production value, the country generates approximately $490.000 billion annually, placing it ahead of nations such as the United Kingdom and Italy in international rankings.
This shift is also reflected in the trade balance: manufactured goods now account for over 70% of total goods exports, with a significant share coming from the engineering, chemical, and electronics sectors. This has been made possible by government initiatives that have allowed the country to capitalize on its competitive advantages.
Make in India
In 2014, the government approved the Make in India initiative to transform the country into a global manufacturing hub. In an effort to reduce import dependence and foster domestic economic development, the program aims to transform India into a competitive manufacturing economy by promoting investment, innovation, skills development, and infrastructure strengthening. To this end, the Indian government has implemented targeted policies to support manufacturing, facilitating foreign direct investment (FDI) in strategic sectors, improving infrastructure, and promoting technology transfer.
In parallel, numerous programs have been carried out that have contributed to the success of the initiative:
– Production Linked Incentive Scheme (PLI): introduced to encourage manufacturing with economic incentives based on the level of production of companies
– National Manufacturing Competitiveness Program: facilitates companies' access to cutting-edge technology, training programs and financing
– Skill India: seeks to improve the capabilities and skills of workers to better meet the needs of companies in the sector and promote entrepreneurship
– Startup India: designed to encourage the creation of new businesses, it simplifies the bureaucratic procedures needed to start a business, offers administrative support in the creation and development process, and facilitates the acquisition of loans for this purpose.
– Invest India: an agency that supports foreign investors interested in doing business in the country and facilitates their integration into the national ecosystem
– Smart Cities Mission: aims to develop more than 100 smart cities, with modern infrastructure and ecosystems that promote innovation and the development of sectors such as manufacturing
– Ease of Doing Business: This involves facilitating the creation and development of businesses in the country, with initiatives such as reforming the regulatory framework, simplifying administrative procedures, and digitizing bureaucratic processes.
On the other hand, the government has invested billions of dollars in the development of industrial parks, special economic zones (SEZs), and industrial corridors, such as the Delhi-Mumbai Industrial Corridor, which connects major manufacturing centers and facilitates the transport of goods. These special zones offer tax incentives and logistical advantages to attract manufacturing companies and foster the development of local supply chains.
Demographic advantage
India has a huge competitive advantage that many other countries can no longer offer: a young population. More than 65% of Indians are under 35, which translates into a human resource pool for decades for businesses. In addition to age, there is also a large pool of people skilled in the technical and manual skills required by industry. From engineers to operators, the country is developing talent that can be quickly integrated into factories, assembly plants, and logistics centers. Technical universities and training programs are closely aligned with the current needs of the manufacturing sector.
Reduction of production costs
Another major draw for manufacturing in India is its low operating costs. From labor to overhead, producing in India can be significantly cheaper than in Western countries. This includes ancillary services, factory leases, transportation, and logistics. These competitive costs allow companies to offer lower prices without sacrificing profit margins. Furthermore, with increasing digitalization and the adoption of technologies like Industrial IoT and automation, companies are further optimizing their processes, making India an ideal location for rapidly scaling operations.
Infrastructure and logistics improvements
For many years, one of the biggest obstacles to manufacturing has been poor infrastructure. However, projects like Bharatmala (road network) and Sagarmala (port modernization) are transforming the country's connectivity.
On the other hand, improvements to the rail network, more efficient airports, and new highways have significantly reduced transport times, allowing manufacturers to move their products between cities or even export them from key ports without significant delays.
Smart industrial parks are also being developed in various regions of the country. These parks feature a stable energy supply, access to water, digital connectivity, and all the necessary services for uninterrupted operation. This translates into smoother and more profitable operations for multinational companies.
Global relocation of supply chains
Many countries are trying to reduce their dependence on China, especially after the disruptions caused by the pandemic. This has created a global trend known as "China+1," where companies seek a second country in which to manufacture.
India offers exactly what these brands are looking for: a large domestic market, a stable democracy, technical talent, trade agreements, and controlled costs. Companies like Apple, Samsung, Tesla, and Foxconn are already producing in India with aggressive expansion plans.
This relocation not only benefits large companies, but also opens up opportunities for local suppliers, distributors, and logistics specialists, creating a complete value network that further boosts the country's economy.
Challenges and how India is facing them
India continues to face challenges that slow the sector's expansion, such as excessive bureaucracy in some states, occasional power outages, and development inequalities between regions. However, the country is addressing these problems with concrete actions, not just promises.
Billions are being invested in improving the energy grid, including renewable sources like solar and wind power. Productivity is also being decentralized, bringing development to less industrialized states, which better distributes opportunities.
And although bureaucracy still complicates some processes, government digitization has greatly reduced manual procedures. Each year we see greater transparency, less administrative corruption, and increased efficiency.
Union Budget 2026
India's budget for this year focuses on boosting manufacturing output, particularly in the seven sectors identified as strategic: biotechnology, semiconductors, electronics, infrastructure, chemicals, critical minerals, and textiles.
The government has placed particular emphasis on semiconductors with the launch of Semiconductor Mission 2.0, which aims to create a self-sufficient ecosystem across all stages of the production cycle, from intellectual property design to manufacturing. Simultaneously, providing financial support to mineral-rich states will enable the development of critical mineral processing capabilities, ensuring essential raw materials for advanced and emerging technologies.
The budgets also include the introduction of new programs to encourage the production of high-value construction equipment and infrastructure. Along with continued increases in capital spending, these initiatives are expected to stimulate demand for industrial machinery and equipment. Regarding infrastructure, the budget anticipates optimizing logistics costs through the construction of more freight corridors, the operationalization of new waterways, and the launch of a Coastal Freight Promotion Scheme.
Conclusion
What was once a service-based economy has now transformed into a global industrial powerhouse capable of manufacturing and innovation. Thanks to government strategies, a sustained demographic advantage, and the modernization of key infrastructure, India has become a competitive location for global production.
